Hurricane Melissa Set to Trigger US$150.0Mn Jamaica Catastrophe Bond to Help Rebuild

• Hurricane Melissa, the most powerful Atlantic hurricane of the year, made landfall this week as a Category 5 storm in Jamaica. The strength of the storm means it will likely trigger a full payout from a catastrophe bond designed to provide funds to the island in the event of catastrophic weather events.
• The US$150.0Mn catastrophe bond, structured by Aon and the first of its kind in the Caribbean region, is intended to help rebuild after natural disasters by providing parametric coverage against losses from named storms. The policy took effect this year and lasts through 2027.
• To trigger the full payment, the storm has to meet a particular strength criteria. The central pressure of the storm must be at or below 900 millibars as its makes landfall and crosses the island nation. Early data from the National Hurricane Center shows Hurricane Melissa’s pressure stayed below 900 millibars in several areas. Those readings are in the process of being verified by an independent calculation agent.
• “While the final numbers are still being verified, the early signs suggest the transaction is doing what it was designed to do: get critical funds to the country quickly after a major disaster,” Chris Lefferdink, Aon’s head of insurance-linked securities for North America, said in a statement.
• The review process typically takes 2 to 3 weeks, and the earliest possible payout to Jamaica could come in approximately 1 month, according to a spokesperson from Aon. Previous parametric transactions payouts have taken 3 months or more, but for this event Aon used an innovative data source to enable faster payments.
• The catastrophe bond was placed using the International Bank for Reconstruction and Development’s (World Bank) “capital at risk” program, which is used to transfer the risks associated with natural catastrophes to the capital markets, allowing the country to access funds quickly after a major event.

(Source: CNBC)